Asia: Talent Strategy in the World’s Next Tech Hub.

John-Claude Hesketh, Managing Partner at Marlin Hawk Group.

From Bangalore to Beijing, from startups to VCs, Asia’s tech scene has been heating up over the past decade, producing giants to rival Silicon Valley’s biggest names. Does this mean Asia has what it takes to become the world’s new number one tech hub and become a hotspot for home-grown as well as international talent?

Tencent’s ubiquitous messaging app WeChat last year reached a staggering 1 billion monthly active users, the majority of whom are based in China. Companies like PingAn and Alibaba have become the envy of the tech world, having set the benchmark incredibly high for any company contemplating entering the Chinese market.

While China holds a dominant position in the region, it is far from the only country capable of producing tech giants that give Silicon Valley a run for its money. Coupang, the ‘Korean Amazon’ is dominating the market before Western rivals can even get a foothold. As the largest online retailer in South Korea with $3 billion in annual sales, it has achieved true unicorn status and epitomises home-grown startup success.

Cities such as Hong Kong, Taipei and Jakarta are becoming renowned for their growing excellence in specific areas of innovation such as fintech, AI and e-commerce. What’s more, the continent’s IT and tech talent pool saw average salaries soar past their European counterparts in 2018, according to research firm Puppet, with paychecks in Japan and Singapore increasing in order to allow businesses to compete for world class talent on the global stage.

There is also an increasing trend of European and American firms making the jump towards establishing or growing their presence within Asia’s booming tech ecosystem. Of course the news of Dyson’s decision to transplant its headquarters to Singapore from Britain will have escaped few, while the Western insurance industry also makes a concerted push into China, citing the market’s ‘vast potential for growth’ as a key motivator.

Regions such as Shenzhen and Singapore might well become more important than Silicon Valley – possibly within the next five years if the trajectory of high-growth tech businesses continue as it has.

However, there do exist cultural and regulatory hurdles for tech companies wishing to open their doors in these markets. To wilfully enter these markets without fully understanding the complexities involved, would be to ignore any learnings from the failures that came before.

Competition vs. market protection

According to insights from consultancy firm Hurun, China created a new tech unicorn every 3.8 days throughout 2018. Despite the fact that the pace of billion-dollar startup generation is beginning to slow, China’s tech sector is still clearly a high-growth force to be reckoned with, coming second only to the US.

Alibaba founder Jack Ma is one of a few Asian entrepreneurs to have achieved global rockstar status. So when he speaks, the whole world pays attention. He fired a warning shot at the recent World Economic Forum in Davos when he said that “This is the third technology revolution – we’re coming.”

His words were not intended as a provocation but were, rather, indicative of China’s ambitions to become a global economic powerhouse driven by innovations in technology. With government bodies and tech companies working together to advance AI, in particular, the country is already powering ahead of the United States. However, it does so while grappling with big issues affecting its workforce: an ageing population, a shrinking workforce and a growing skills gap despite the nation as a whole placing great value on education. A shortage of workers has been driving up salaries making it harder for home-grown and multinational companies to attract – and retain – the talent they need.

Elsewhere, Singapore, Hong Kong SAR and Japan are all in the top ten of the Global Competitiveness Index published by the World Economic Forum. The index is defined as the set of institutions, policies and factors that determine the level of a country’s productivity. In other words, how attractive a market will be for doing business with local players or establishing an office. Singapore’s third-place position, geographical location and quality of the workforce will undoubtedly have played a part in Dyson’s decision to relocate its HQ to the city.

Homegrown vs. multinational

The likes of Alibaba and Coupang are homegrown success stories, but far from being the outliers, they could be part of a wider trend. FT Confidential Research found that in China, multinationals are losing market share as the quality and marketing of home-made goods have become more sophisticated.

But this isn’t the entire picture. Regardless of the foreign market in which a multinational operates, there has always been the understanding that localisation is key whether this relates to the product, service, pricing or marketing. Home-grown brands have the edge over their multinational counterparts as they are able to react more quickly and more accurately to the demands of the market. Their leaders and workforce possess a deeper, more nuanced understanding of their market and customer base that doesn’t need to be heavily researched or explored before real action is taken.

Regulatory challenges

It is well documented that Western companies wishing to enter the Chinese market must work within an environment that is almost the polar opposite of what they’re used to. While local operators will know instinctively the regulatory boundaries within which they must operate, those originating from outside of China’s borders run the risk of falling foul of Chinese censors. Facebook and Google have been two high profile examples of US tech giants who had no choice but to admit defeat and exit the Chinese market.

However, Asia is so much bigger than China and to consider it as one homogenous nut to crack would be naive, if not disastrous. Multinationals must circumvent each country’s unique regulatory challenges if they are to be successful.

Singapore and Japan are two of the most competitive countries in the world for doing business, yet both have very different, restrictive labour regulations, which are a major concern for international companies.

Singapore enforces strict rules relating to workers’ pay, holiday allowance and overtime, and it keeps tightening the rules for foreign workers, which make up around one-third of the total workforce. Only recently, the government announced it would lower quotas on foreign workers against a backdrop of looming elections and slowing economic growth. In Japan, salaries are based on seniority and are adjusted for the needs of employees, for example if they have children, something which is unheard of in Western markets where remuneration is based on the seniority level of the job role itself.

How to overcome these complexities

Despite the many challenges, firms are not deterred from entering Asian markets. In fact, Singapore’s Economic Development Board reported that a staggering number of companies – 80 per cent of the world’s top tech firms – are establishing or growing their operations in the country.

It’s impossible for individual multinational companies to effect regulatory change in the short term before they are truly established as trusted operators. It can take years. If they are to overcome those complexities, organisations will have to look within. People play a crucial role.

Starbucks’ successful strategy in China has been attributed to its long-term commitment to the market, well-executed collaborations with local partners, the adoption of local technologies and of course the inclusion of local items on its menu. This will only have been possible by having home-grown talent, the people with intimate knowledge of the country’s written and unwritten rules, working together with their Western colleagues, those with in-depth knowledge of the brand, its history and values.

Local talent strategy

Competition for world-class talent is increasingly fierce. Any multinational wishing to enter an Asian market must have a robust local talent strategy in place if they are to attract the best people.

Their strategy must take the unique characteristics and sensitivities of each country into consideration or else a company sets itself up to fail. For example, while it might be difficult to find high quality talent in China and Singapore because of market competition, in emerging Asian markets such as Vietnam or Cambodia, high quality talent is in short supply because of lower education levels among the workforce.

This also presents multinationals with a key opportunity. If it isn’t possible to attract star people from the outset, companies should look to develop this talent themselves. Rising stars who show great potential, work ethic and adaptability could well outshine today’s senior executives in the long run.

Recruiters and HR teams need to actively look for the individuals they think can succeed in a given senior role. Those who have demonstrated their talent within their current roles but are not yet the finished article, will be tomorrow’s future leaders. Not only do they possess valuable local knowledge which will be essential for local business success, but they are also still adaptable and can grow with your business. With talent and company influencing and growing with each other, companies are more likely to succeed without compromising on their core corporate values.

Talent development

A talent strategy that focuses on the up-and-coming leaders does mean that more investment is needed in training and development for the new executive and their team. Rather than an expense, it should be seen as an investment in the future of the business, as well as the country’s development as a whole.

Governments in Malaysia and Indonesia, for example, have a strong emphasis on building up local talent. To have the support and help of international companies will only accelerate a country’s economic growth and attractiveness as a business destination.

There are many factors at play that will influence whether or not Asia will become the world’s number one tech hub. But by having a smart talent management strategy – one that pairs up existing leaders with local future stars – companies can build a workforce capable of overcoming most complexities and achieving success as the tech boom continues.

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